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MUMBAI: Loan growth in November was higher than in the same month in 2011 as the UPA government's new-found zeal for economic reforms buoyed investor mood. This is the first time the credit growth rate in any month has surpassed the number in the corresponding period of the previous year.

Credit growth in November was higher than the Reserve Bank of India's full-year estimate due to rising demand for personal loans and higher credit card spends.

Gross bank credit rose 18% in the penultimate month of the calendar, compared with 17.2% in November 2011, according to data put out by RBI. Non-food bank credit expanded 17.6%, up from 16.8% a year ago.

The Reserve Bank of India had projected a 16% growth in non-food credit for fiscal 2013.

Bankers were optimistic about demand, but cautioned against reading too much into the numbers since many issues related to infrastructure were yet to be sorted out.

"There is positive sentiment around, and we see demand increasing," said Sanjay Arya, executive director, United Bank of India. "The only two discouraging numbers are the current account deficit and fiscal deficit."

Investor mood is improving after nearly two years of gloom as the government has showed signs of acting on economic issues. It has allowed 51% foreign direct investment (FDI) in the multi-brand retail sector and allowed corporates to set up banks. Also, a new mechanism to hasten clearance for projects worth more than Rs 1,000 crore has been okayed.

The festive season and the aggressive bid by banks to push retail and unsecured loans have also helped improve credit offtake in the month.

REVIVAL IN SENTIMENTS

"There is a revival in sentiment and this will translate into investments," said BK Batra, executive director, IDBI Bank. "The festive season fuelled demand. This is a busy season for auto and agriculture (sectors) and working capital (requirements) from corporates."

While the overall credit demand has grown, advances to industry in November grew 17.7%, up from 15.2% in the previous month, but still lower than 20.9% a year ago. However, credit to the services sector slowed to 15.3% in November, from 17.2%.

"Credit offtake has improved mainly due to an increase in sanctions and incremental requirement for working capital," said M Narendra, chairman & managing director, Indian Overseas Bank. "We are trying to diversify our loan portfolio by focusing on the retail segment."

With the RBI curbing banks' lending to finance companies and to lenders against gold as collateral, credit to NBFCs grew at a slower pace at 30.3%, compared with 39% a year earlier. Demand for working capital usually picks up in the second half. Robust demand for production and sugar industry credit to agriculture rose to 24.4% from 7.3%.

With strong demand for auto and housing loans, personal loans increased by 16.3%, up from 13.3%. Also, consumers have started using credit card facilities leading to higher outstanding amounts.